Adding Teeth to Warranties

What is the purpose of a construction warranty? When asked this question, many contractors say they provide a construction warranty to instill confidence in their work and because they do not want to be “on the hook” for problems with the project (caused by defective work or otherwise) in perpetuity. Contractors provide a warranty limited to a period of years (or shorter) because they want to define the time when they are responsible for fixing problems.

Many contractors believe they have no liability for problems with a project that are discovered beyond their warranty period, whether that period is one, two, three or more years. Many contractors, however, are generally incorrect in their understanding as to the legal effect of a standard construction warranty.

Most courts interpreting standard warranty language – such as “the contractor will provide a one-year builder’s warranty” – find that the language operates as a promise by the contractor to fix the work in the warranty time period, but the language does not operate to bar claims by owners for defective work after the warranty period.

In some states (Missouri, for example), contractors will not be able to limit their liability for defective work to the warranty period – no matter what language is inserted into the construction agreement. In these states, any contractual agreement to shorten the time within which a contractor may be sued for defective work are void and unenforceable either by statute or as a matter of public policy. In other states (Maryland, for example), however, the parties to a construction agreement have wide “freedom to contract” and a contractor can use a well-drafted warranty or other contractual provision to limit claims against the contractor based on defective work to those discovered during the warranty period.

Clear Language

In states that allow the parties to agree to shorten the time when claims arising out of construction defects can be asserted, to bar liability for construction defects beyond the warranty period, it is very important for the construction agreement to include clear and explicit language.

“Warranty claims are limited to one year” is not sufficient to cut off all liability for defective construction after one year because defects in construction do not only give rise to “warranty” claims. If a contractor’s work is defective, the defects can also give rise to other legal causes of action like “breach of contract” claims and in some states, “negligence” causes of action. Only providing a limitation by when “warranty claims” must be asserted does not address the breach of contract and negligence claims.

Including a provision in the agreement that bars “warranty claims” only is also problematic because it is unclear if that language means both express and “implied” warranty claims are barred after one year. In many states, certain warranties are implied into the construction agreement. For example, in many construction agreements there is an implied warranty of “workmanlike construction.” When a defect in construction is discovered, an owner can bring a claim against the contractor for breach of that implied warranty. If a contractor wants to eliminate liability for construction defects after the warranty period, it also needs to eliminate any liability beyond the warranty period arising from breaches of any “implied” warranties in the construction agreement.

Instead of including language like “warranty claims are limited to one year,” the contractor who wants to limit its liability for construction defect claims to a shorter period should consider including in the construction agreement broad language that explicitly addresses the world of possible claims that can be asserted arising out of a construction defect (negligence, breach of contract, breach of implied warranty, breach of express warranty, etc.) and that explicitly states all such claims are barred if not asserted in the warranty period.

Where standard warranty language has failed, by itself, to bar all claims relating to defective work beyond the warranty period, more express and broader language has been found by courts interpreting the language to eliminate a contractor’s (or subcontractor’s) liability for construction defects beyond the short period stated in the parties’ construction agreement.

The opinions from these courts and others demonstrate that a contractor can (in some states) significantly limit the time period when an owner can assert claims against the contractor based on defective work, and the time by when a contractor can be found liable for defective construction in the construction agreement if the agreement includes broad language eliminating or waiving liability for all claims that could be asserted arising from defective construction, and not merely limiting liability for warranty claims or merely providing a “one year warranty.”

If contractors want to preserve any argument that their liability for construction defects is “cut off” after the warranty expires, contractors should consider including language broadly barring and waiving all claims – not just warranty claims – asserted beyond the warranty period, in their warranty provisions or otherwise in their construction agreements.

Jeremy P. Brummond practices in the litigation department at Lewis Rice in St. Louis, Missouri, with a focus on engineering and construction. He can be reached at jbrummond@lewisrice.com.